Preparing for Your Annual Accounts

2. Financial Statements

To avoid confusion with everyday management accounts, the financial information in a company's annual accounts is generally referred to as financial statements.

2.1 There are usually four sections.

• A Report of the Directors, giving a business review and their view of the firm's performance and prospects.
• A balance sheet, outlining the company's financial position on the final day of the accounting period (the year end).Essentially, this shows what the company owns and what it owes.
• A profit and loss account, showing the trading performance over the accounting period (usually 12 months).It summarises sales, costs and expenses, profits (or losses), and any tax provisions.
• Notes, giving more details about the information in the balance sheet and the profit and loss account.

2.2 The Companies Act sets out how the accounts will be presented for a limited company, with headings and subheadings.

• The format should also comply with UK accounting standards, which dictate how certain transactions should be treated in the financial statements.